Models of regeneration delivery

Andrew Hume Director- Development Consultancy What is the Scale of the Problem?

- Total Value of commercial, residential, other property stock in the UK: £4,500bn

- Regeneration areas, @ 10%\*: £450bn

- Depreciation of stock @ say 5% pa and that’s before catch up!: £22.5bn pa

- Therefore, it’s beyond the public or private sectors alone…..and anyway, what’s the upside?

* Broadly based on analysis of Deprivation Index. Reduction in EC Assisted Area status will in part be mitigated by Growth Area status. Local Authority Context

- Deficit Reduction

- Regeneration – ‘Proactive versus Reactive’

- Area wide regeneration

- Asset Management

- Efficiency Agenda (Use of Resources)

- Public sector collaboration

- New ways of working

- New models of delivery

- Localism agenda The New Frontier

- Changing financial / economic environment

  - Grant funding
  - Debt finance
  - Development in London
  - London house price strength

- Changing policy context

  - Localism, mayoral powers
  - General power of competency
  - Efficiency Agenda
  - Area wide regeneration

Always been a need for public : private working - but how it takes place is changing Development Value Engineering What does the private sector do?

- Priced development risk – ‘flex’

  1. Planning Certainty
  2. Occupation / Users
  3. Ground Conditions
  4. Funding
  5. Land assembly

- Cashflow

  1. Land drawdown
  2. Finance costs

How can a Council achieve these for its regeneration sites? Emerging Delivery Structures

First LABV Development agreements LIBV Co-investment funds ESCO / MUSCOs TIF

2000 Today The LABV

Public Sector

Property Assets – investment and development

LABV

Development Skills & Cash

Private Sector

3rd Party Debt

Regeneration Projects

Renewables

Development Projects

Investment Assets The LABV

The Bad LIBV – a new LABV!

Public Sector

Deposit on grant of Option (% of MPP)

Property

Equity committed (working capital and development equity)

LIBV

Repayment of balance (less deposit paid) of value asset portfolio (recalculated on drawdown) on satisfaction of conditional contract

Development Equity

Sale proceeds

Regeneration Projects

Renewables

Development Projects

Investment Assets

Private Sector

3rd Party Debt

LIBV – a new LABV! LIBV – a new LABV!

The Good Co-investment fund

Public Sector

Private Sector

European Funding New Homes Bonus Prudential Borrowing Other

CoIF

Investment projects

1 2 3 4 Co-investment fund ESCO / MUSCOs

Service charges

Development Project

ESCO (or MUSCO)

Investment

Private Sector Investor

Private Sector Developer

Building

Infrastructure (utility)

Occupiers/tenants ESCO / MUSCO Partnership

Landowner

Land

Land value

- reinvestment towards s106
- Regeneration benefits

JV Co Procure relevant works/services to provide upfront infrastructure

Procure Relevant Works / Services to provide Upfront Infrastructure and Planning

Land Parcel 1 Land Parcel 2 Land Parcel 3 Land Parcel 4

£ (+DM Services)

Investor

ESCO (or MUSCO)

Coupon and finance fees

- % of sales proceeds

Sale proceeds ESCO / MUSCO Partnership

The Good Return differentiation model

Oxford City Council

Potential land value / reinvestment towards s.106 / wider regeneration benefits

Possible Prudential Borrowing

Land

JV Co

Procure Relevant Works / Services to provide Upfront Infrastructure and Planning

Land Parcel 1

Land Parcel 2

Land Parcel 3

Land Parcel 4

Co-investment Partner

£

Return on investment and share of sales proceeds

Sale proceeds Return differentiation model Tax Increment Financing

- **Existing Tax Base**: Frozen at start of project and continues to taxing jurisdiction.
- **New Tax Base**: (to taxing jurisdiction)
- **Tax Increment**: (used to service debt)
- **Annual Taxes Generated**: c. 20 – 30 years TIFs

• Lessons from the USA

• Economic Development ‘Menu’

- Multiple tax revenue base, grants, social investment programmes
- Longevity - 23 years life (plus 12 yr extension)
- Alternate Revenue Bonds - with and without enhancement
- Pay-as-you-go

• ‘But For’ – financial need

• Chicago Experience

- 143 TIFs = 30% City acreage (2003)

- Annual increment in 2002 - £143m

- Ration of Private to TIF funds ($) 6.35:1

- City limits public involvement to 25% of project cost The UK TIF Opportunity

- Legislation in time for EZs?

- The need is now

  - pilots are about a longer term solution

- A private sector TIF model?

- Are the schemes LA wants commercially viable?

- Is there real additionality?

- Is there consensus on objectives (over medium/long term)? How Chicago Uses TIF Funds

- Financing: 37%

- Public Improvements: 35%

- Job Training: 0%

- Property Assembly, Site Prep, Etc: 20%

- Rehabilitation: 4%

- Reimbursing Developers for Interest Expense: 1%

- Studies, Professional Services: 3%

- Relocation: 0% Tax Increment Financing

The Good Summary

• Different structures for different needs – form must follow function

• What’s Good for some are Bad for others!

• Public private joint risk sharing essential

• Just because its ugly doesn’t mean its bad We’d be delighted to assist you with structuring regeneration solutions for your real estate assets. Please feel free to contact us.

Andrew Hume Director 020 7399 5769 andrew.hume@eu.jll.com Quick Fire Questions